BoE Expected to Keep Rates on Hold, Volatility Expected for Pound (GBP) Exchange Rates
With today’s data calendar being rather sparse the market focus is now firmly set on tomorrow’s Bank of England (BoE) rate decision – though analysts are no longer expecting a rate hike to occur on this occasion.
This is largely due to the disappointing performance of Q1 GDP growth and the latest weak PMI readings – figures combined that should convince the Monetary Policy Committee (MPC) that the UK’s economy is too fragile to handle another rate rise at this juncture.
In this regard the accompanying statement, press conference and revised growth forecasts will take precedence, with any indication of positivity or optimism liable to kick Sterling higher.
Indeed; an upbeat response could still be possible given the fact that the UK’s labour market remains strong and inflation is still above target levels.
This will be dependent on the central bank keeping the possibility of another rate hike on the table for the coming months, however.
Australian Dollar (AUD) Exchange Rate Outlook Diminished by Flat Retail Sales
The outlook for the ‘Aussie’ Dollar has worsened in recent days, with a significant fall in market risk appetite and yesterday’s soft Australian retail sales figures curbing demand.
According to the Australian Bureau of Statistics (ABS), retail sales were flat in seasonally adjusted terms, printing at 0.2% quarter-on-quarter in Q1 2018.
This was down from the previous score of 0.8% and below the forecast of 0.6% and largely driven by weak wage and income growth.
Sarah Hunter, Head of Macroeconomics Australia at BIS Oxford shared her thoughts on the results:
‘Conditions remain tough for bricks and mortar retailers, with weak wage growth and income growth, rising prices for essentials such as electricity and increased competition all putting downward pressure on sales’.
In other news, US President Donald Trump’s decision to withdraw from the Iran nuclear deal prompted some risk aversion amongst the markets, with investors hesitant to buy too heavily into the commodity currencies given the uncertainty surrounding the global response.
Australian Consumer Inflation and RBA Monetary Policy Expectations – What can we Expect for the GBP/AUD Exchange Rate?
Other notable drivers for the Pound Australian Dollar (GBP/AUD) exchange rate will be tomorrow’s Australian consumer inflation expectation result for May and next week’s Reserve Bank of Australia (RBA) meeting minutes, with both expected to paint a mixed picture of the Australian economy.
The marked slowdown in retail sales should dampen the outlook for growth and inflation; a perspective that might be reflected in the consumer inflation expectation result.
Meanwhile, the minutes will likely reveal that RBA Governor Philip Lowe and others are set to stick to a ‘wait-and-see approach’ until the next meeting in June, particularly after commenting that the low level of interest rates is ‘continuing to support the Australian economy’.
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